From Pub Crawls to SaaS: Classy’s journey to $100M with Scot Chisholm

Don’t miss out on my conversation with Scot Chisholm, where we discuss the multifaceted journey of growing a startup and driving market insertion.

Delve Into the Transcripts for Crucial Insights from this Episode

Mark MacLeod:
In this episode, I sit down with Scot Chisholm, co-founder and CEO of Classy.com. Scot led Classy from the very beginning to over 300 employees and 100 million in revenue.

We’ll talk about all the hard-worn lessons and scar tissue and the whole journey from founding to exit, including when his investors tried to get rid of him, unsuccessfully, I might add. Scot is now sharing his experiences with founders and we talk about that as well. This episode is full of actionable insights and anecdotes. I hope you enjoy it.

Scot, welcome to The Startup CEO Show. How are you doing today?

Scot Chisholm:
Good, how are you? Thanks for having me.

Mark MacLeod:
Yeah, I’m fantastic. As I was getting ready for the show, I almost took out my cowboy hat. I figured, you know, that might be appropriate for Scot, but then I just didn’t.

Scot Chisholm:
Well, I will say my neighbors here in Whitefish are a lot more cowboy than I am, but I do sport a cowboy hat now and again. I would say I’m more into farming and gardening than the cowboy stuff, but it is pretty cool culturally around, around this area.

Mark MacLeod:
Cowboy hats look good. I think they get an unfair wrap. I’m a fan and I live in the country now. Not as country as you, but we had this big country fair with a rodeo last year, or actually the first year that we moved up here. And so I was just like, screw it, I’m getting a cowboy hat.

Scot Chisholm:
It’s also ridiculously hot at rodeos and things like that. So they serve a purpose since, you know, you’re on a horse all day long and in the baking sun, in a field, it makes a lot of sense. So they’re quite functional, too. But I agree, they look good. It’s kind of badass.

Mark MacLeod:
It is totally badass. I haven’t got the boots yet, but I definitely have the hat, and it comes out from time to time, which is awesome.

Scot Chisholm:
Now boots, different. I feel like you’ve got to be a certain personality to really be able to rock cowboy boots well. I have sort of a hybrid. I forget what they’re called, red wings or something. They’re sort of like a little bit of a hybrid. And those work well for me but I haven’t gotten into pointy cowboy boots quite yet, but we’ll see. I’ll keep you posted. I know your audience is super interested in this.

Mark MacLeod:
That’s why everyone’s here. Cowboy attire 101. So you and I first met last fall in LA at this founder retreat for folks that are kind of building their personal brands. And if we’ve got time, I’d love to get into that, but want to start off with Classy, but, by the way, shout out to Matt Gray, who’s the guy whose retreat we were at. He’s the real deal. And he assembled a group of pretty badass folks who had real experience. And so that’s why I really wanted to have you on the show.

You’ve done lots of things and lots of things we could unpack. But probably the big one that’s kind of most relevant to this audience is building Classy into a company with, you know, 300+ people, 100 million in revenue. And so I’d love to spend a bunch of time there, maybe just unpack that.

First of all, for folks who maybe aren’t familiar, just tell us what Classy was and then just maybe walk us through that journey. What were the big phases, the big chapters, and then we’ll see where the conversation takes us.

Scot Chisholm:
Yeah, for sure. Well, first of all, I appreciate you having me, and after my journey with Classy, I now also work with lots of founders, as you know, which is super rewarding. I love just being on and sharing the story in the first place.

But Classy was actually founded as a fundraiser for cancer research because my mom had had cancer when I was growing up and I had moved to San Diego from the East Coast, and I was living with a bunch of buddies, and we decided to host a fundraising event for a local cancer organization, and we were coming up with an idea for what this event would be, and being 24 years old, we landed on a pub crawl, of all things.

So we ended up collecting cash at the door, and we raised a bunch of money. And when we were trying to figure out the name for that pub crawl, the movie Anchorman with Will Ferrell happened to be on in our apartment. And in that movie, which is a ridiculous movie that I’m sure a lot of folks have seen it, he says the catchphrase, “You stay Classy, San Diego.” So my buddy Pete turned to me and said, well, why don’t we name the pub crawl the Stay Classy pub crawl?

I never thought in a million it would go anywhere but that one event turned into, like, dozens of different charity events for cancer at first. But then we branched out and we did athletic events, we did concerts, we did all sorts of stuff.

And the whole idea was just to get young people involved in different causes in philanthropy, younger in life and to have fun doing it. So we were meeting all different people and stuff, and every single event would benefit a different charity.

And over time, as we were working with the nonprofits, none of us were from the nonprofit space necessarily, we started to understand the technology they were using, some of the challenges they were having reaching new people.

And this was in 2000 something, and the first event was in 2006, and we actually launched as a tech company many years later in 2011. So this is a long initial period. I call it the longest customer discovery period ever.

So, you know, we’re working hand-in-hand with these nonprofits. We’re seeing the challenges they’re having. They are slow to adopt online, and they are really having trouble reaching out and connecting with a younger audience. And I was born in 81, so I’m like, the older millennial, you know? So it’s like, what are these millennials at the time? You know, what are they doing? What’s this Facebook thing? And so we sort of figured, hey, we kind of understand the nonprofit, and we also understand the donor, which is the young donor, like we are them.

So what if we built a platform that would help them connect with young people online? And at first, it was really for our own event, our own fundraising efforts. It wasn’t even for, like, a commercial. It wasn’t for every nonprofit. It was really for our local fundraising. We were doing it but then we realized, wait a second, we’re kind of onto something here. As we started to get positive feedback about the idea. And we actually did build an alpha version of what would become Classy for our own events.

And the nonprofits quickly told us like, hey, can we use this for our own stuff? Can we use this for the other things that we’re doing throughout the year? So we went through an incubator in San Diego and finished the largest pivot of all time, which is from a pub crawl to a SaaS company. And we relaunched in 2011 as Classy, the technology company. And it was basically a white-label crowdfunding platform for any nonprofit to be able to use.

And then over the years, we really built out that suite to go well beyond, we call it peer-to-peer fundraising or crowdfunding, but it has a whole event capability now for in-person events, hybrid events, and virtual events. It has recurring giving, which is almost like subscription giving for nonprofits now. And it has so many other tools. You can think of it like Shopify meets HubSpot meets SalesForce for nonprofits. Basically at this point, it’s the full suite of tools that they need to reach people online and to raise money.

And that took many, many years, obviously, to get to that mature point. We started as very much a point solution, selling to really small nonprofits, to be honest. So when I look at the journey and there’s lots to dive into this, but we started kind of at the bottom of the low end of the market, rather selling to organizations that were almost like SMB, like small mom and pop for profits, right? Kind of the same vibe.

And then we started to move up market over time. We didn’t leave the bottom of the market, we just had a slightly different approach to how we acquired customers there. But now it’s a multi-segment company. We work with not only the small guys, but we work with some of the largest enterprise nonprofits on the planet, like Salvation Army, Shriners, children’s hospitals, and many of the different higher-ed institutions across the country and in some other countries as well. We do get donations from every single country in the world as well.

So it’s international in that way. But we’re mainly U.S.-focused from an organization perspective, and the platform raises billions of dollars every year. I think we’re nearing in the not-so-distant future, $10 billion raised all time on Classy alone. And then we were obviously acquired by GoFundMe. We can get into that later, but GoFundMe is a whole nother animal and raises a ton of money as well. Combined, it’s the largest giving platform in the world.

Mark MacLeod:
Wow! Amazing to go from a pub crawl to that impact.

Scot Chisholm:
You know what’s funny is that Will Ferrell actually caught wind of this. I think we might have reached out to him. And he actually made a video like a spoof claiming to be the founder of our company and sent it to us. It was pretty hilarious, actually. I got to dig it up because it’s really funny.

Mark MacLeod:
He’s probably my favorite comedian.

Scot Chisholm:
Yeah, he’s ridiculous. I hung out with him at a golf tournament once for his charity, and he literally didn’t break character the entire golf tournament. It wasn’t anchorman, it was some other weird character. And he just acted so goofy the entire time. You couldn’t have a normal conversation with him. It was freaking hilarious.

Mark MacLeod:
That’s amazing. Now, I used to be a venture capitalist, and one of the rules that VCs have is you choose markets that are rich. And so when I think about building big companies, I don’t think about not-for-profit. But I guess you weren’t really charging them, right? Your revenue, was it a cut on the payments from the consumer?

Scot Chisholm:
We actually do charge the organization. So it’s a subscription plus transaction fee model. Now, the donor can cover that fee, but the Classy business model, GoFundMe is different, and we can get into that a little bit later but the Classy business model is very much like Shopify, where there’s a subscription component and then there’s a processing component, and then the donor can cover the fees if they want. And actually up to 80% of donors will actually cover the fees, which is pretty cool.

But the non-profit, sometimes they don’t want to offer that to the donor. They just consume it, and that’s fine with them. So there’s a toggle, and they can basically have a bunch of settings there to decide how they want the pricing to go. And then it’s essentially volume pricing. So if your organization’s doing a lot of volume, it’s a little bit heavier on their subscription, because you’re a bigger organization, a lot of complexities and things that you do.

You get the enterprise version, essentially, but you get lower on the processing fee. So as a total cost of fundraising, if you will, a percent of the volume, it goes down over time. So it’s essentially a subscription plus transaction fee, but volume pricing is based on how much you’re raising online.

Mark MacLeod:
That makes sense. I saw two broad value propositions when I looked at companies to invest in, and I was only a SaaS investor. There’s companies that save you time and companies that make you money. Freshbooks saves me time, and makes it easier for me to invoice. You could argue it makes me money but I already earned the money, and it’s really just a way for me to invoice the customer.

Shopify makes me money, and like, because I helped me set up a store and I get customers and this is literally helping a not-for-profit make money. Like, use my platform and you’re going to get way more donations. So, I don’t want to trivialize your go-to-market but I’m sure that’s a pretty strong value proposition to go into a charity and be like, hey, we’re going to grow your donation base.

Scot Chisholm:
Exactly. And our initial sell was very conversion-focused because of the experience that we were providing. It was a modern, mobile-first experience that was socially integrated and that was new at the time. So we had just a phenomenal pitch around that.

And then peer-to-peer fundraising, the very nature of that is empowering your supporters to raise money on your behalf. So it’s almost like crowdfunding on steroids, where the actual supporters are getting out there and sharing the word of your mission and recruiting people. So you actually get new donors. Like, imagine new customers coming from your customers. It’s like a referral engine.

So you’re not only raising more, you’re getting brand new people exposed to your organization. And then over time, as the tool got stronger and it really became a platform and not a point solution, we had a very strong consolidation pitch because they might be using five different things from spreadsheets to some non-fundraising specific CRM platform.

And we’d say, hey, consolidate all that into this one platform. So it’s not only making you money, but it actually was the saving you time and saving you money as well pitch, which is what it is now.

Mark MacLeod:
Did Facebook view you as a competitor or a friend?

Scot Chisholm:
Facebook viewed us as friends, and they’ve actually since shut down their crowdfunding more recently. That was a direct competitor to GoFundMe, though. And what was interesting is Facebook was an enormous source of traffic for GoFundMe and for Classy.

And so it was this awkward, frenemy thing with them because we would collaborate with them in various ways, but they launched a competing product, which they do across a lot of different verticals as well. So they’re very good at being frenemies. Salesforce is very good at that, too. And we were frenemies with them for a very long time. More friends than enemies, for sure.

But we would always brush up against their tools. But Salesforce was actually our strongest go-to-market partner, and they helped us move up market and build credibility. They were also the first institutional investor in Classy. You talk about when you started this, you said, people don’t really look at the nonprofit sector as a business opportunity, per se.

That’s not why we started it. We started it because we were literally trying to solve our own problems. You know, we were building software for our own fundraising events. So we started from the outside in, almost, as the supporter of the organization. And then we realized it could be hugely impactful and be a great business opportunity.

But it took us like years, four or five years to actually attract that first check from an institution because they would say the same things like, first of all, they would say, are you a charity yourself? They were actually confused. And then second, they would oftentimes just not understand the market.

There are a lot of investors that are on the board of nonprofits, but they’re not necessarily the ones running the fundraising operation. They didn’t really understand the pain of the nonprofit administrator, you know what I mean? Like they would in maybe a for-profit company that they were more familiar with.

So we raised $25,000 at a time in the beginning from individuals, mostly friends and family at first, and then angel investors. And we were lucky to attract probably like three super angels and we didn’t identify them as super angels necessarily, but they came in and invested, say, $100,000, which was a huge deal for us. And then they saw the traction of the company and they put in another check and another check, and all of them ended up being about a million-dollar investors in the company.

Each of those was a successful entrepreneur who somehow had a connection to the nonprofit space and got it right away. One owned a foundation that granted money to nonprofits and one of the charities that he was granting money to was using us. So he actually got to see one of those charities using us. And he called us up from Texas and asked if we were interested in angel investors. I mean, that never happens, right? So we didn’t even know this person.

And he’s an awesome guy, Bob Graham. He was on the board of Invesco, it turns out. And they’re very involved in the Yellowstone foundation up here in Montana, actually. But they became a phenomenal supporter of the company over time. So that’s kind of how it went for a long time, for several years.

And then Salesforce ended up becoming interested in Classy because we had built an integration to Salesforce for CRM. So it was a very strategic reason. And they had already identified the nonprofit in the higher-ed vertical as a big market and something that they were interested in pursuing.

So we just became an early go-to-market partner with Salesforce and then their VC arm kind of looked at it and said, huh, interesting. Like, I kind of like what you guys are doing. And they wrote a $500,000 check, which was for us like monumental at the time, and they increased their position over time, but that was the largest check we had ever received.

And then the dominoes started falling a little bit at that point because there were a couple of other boutique VCs, bullpen capital out of New York, hinge capital out of San Diego, and they were sort of circling us and they were waiting to see what would happen with the Salesforce thing. And then they all ended up investing in that round, which was sort of a funky Series A, because we had raised $5 million from angel investors over time, and then we lumped in a million or so from these boutique VCs.

And then a little bit later we ended up raising a Series B from Peter Thiel’s fund, Mithril Capital, which is his other fund outside of Founders Fund, and a partner called Paul Leggat joined the board and he was phenomenal. And another just got super lucky with him as a partner throughout the years too.

Mark MacLeod:
Wow, what a journey. I see many companies that start out serving small customers and then move up to enterprise, but don’t keep serving both. What was it about this opportunity that enabled you to serve both? Did you end up just creating two completely different versions of the product? That’s rare to serve both ends of the market.

Scot Chisholm:
It is. And I think we really admired companies like HubSpot and Shopify and others that started low and went high. We really did have that strategy in mind from the beginning. If you start low and go high versus start high and go low, you’re able to build the nucleus of the product that has commonalities through all the segments, and then you can build features on top of that that can be toggled on and off for the different various types of customers.

And that was really the approach, like layers of an onion versus when you start tall, you might build the core platform just for the enterprise use case, and it’s very difficult to whittle it down into a simple use case. So we really wanted to have a multi-segment strategy from the beginning, but we were pretty disciplined on staying in the SMB with our target customer for a while until we really understood them.

Because if you kind of rush up to the segments, that’ll completely fuck your product roadmap as well. And you’ll have just a lot of competing interests from the various customer types, even within one market, which was nonprofits.

But as you said, just like in business, an enterprise nonprofit is, in terms of their use case and sophistication, much different than a smaller nonprofit.

So when we eventually did make that move, and it took us a lot longer than we had thought, and that actually caused this story for after it caused a lot of pain with our Series C investor, which we didn’t get to, we felt it was going to take us about a year to move upmarket. And that’s like a pretty quick transition because we didn’t have enterprise DNA within the company from a staff perspective.

So we didn’t really have enterprise sellers, we didn’t have an enterprise motion, we didn’t have account-based marketing and other tactics that are important for SaaS companies moving up-market.

We were very transactional sellers. Our deal size for many, many years was sold at $6,000 a year. So that was really where we had really hit our stride, and we were good. The issue with, you know, the smallest organizations, and this is true for-profit, too, is you have a lot of turnover there, like their own staff, so you have a lot of different folks coming in sort of like a revolving door.

In the nonprofit space, a lot of those organizations are run by the board of directors because the organization doesn’t have a big staff. So there’s naturally more turnover which led to weaker retention characteristics down there versus the high end of the SMB or mid-market with or enterprise, which had phenomenal retention characteristics. And now barely anyone leaves Classy, so I’m very proud of the team that’s leading the company now because they’ve just done an amazing job.

But that was the thesis. It’s just more stable, and more recurring, the customer is going to look at this more as a long-term partnership, and that’s exactly what happened. But all we did was really just change the pricing. We made it a little more affordable on the bottom, and then we made it more self-service.

So it was much more product-led growth there versus in the beginning we were just transactional sellers. So we kind of loosened, we brought the go-to-market and the sales team. The line in which you were able to sell and the rest was done by essentially product-led growth in the bottom end.

Mark MacLeod:
I love it. In the early days of Shopify, we would hear from pretty large merchants like logos that we would have killed to have. But to Tobi’s credit, he said no all the time because he knew it would be a distraction. And so Shopify was a pretty big company before it launched Shopify Plus. And Shopify Plus was more or less Shopify with different service level agreements, crazy support, and more uptime promise. It’s morphed into a more complex product now, but it was more or less the same product.

Scot Chisholm:
And that’s exactly what we did, too. We started off honestly less with features and more just with better service, and a dedicated account representative that would really work with your team. And all these new terms started popping up.

Things like sales engineering. We needed sales engineering now we needed this. It’s all these ‘enterprisey’ things. There was a point where we swung really far in that axis, and then we hit a nice middle ground where we understand the go-to-market motion of each segment and we were able to tailor the product appropriately for each segment so that they weren’t buying something bloated for their use-case. An SMB organization doesn’t want to buy an enterprise product. It doesn’t make sense.

So that’s so important to get that right. But it takes time and learning, just like anything. It’s like entering a new segment is similar to launching a new startup in a way. Like there’s a whole new product-market fit cycle that happens, that you just have to have a lot of humility and you have to really come in with a learning mindset because you can go in there assuming what worked, and the SMB is going to work in mid-market and enterprise, and that’s rarely the case.

So for us, you know, we definitely got slapped in the face a few times on that transition, and it took a lot longer than we hoped. And our Series C investor that I was alluding to before, who had invested in the company on the thesis that we could move up-market, got really impatient and actually ended up wanting to boot me out of the company and push out the rest of the management team.

We had a nasty conflict for two years, and we ended up buying them out, which was kind of unheard of. And we were at scale. I mean, we were tens of millions. It was not a small company at that point.

And it literally went down to the wire. They were trying to bleed us out. They restricted funds coming into the company, they restricted options going to employees, and they did everything that they possibly could to wear us down.

And I’m unbelievably grateful to the insiders, to the existing investors, because they were the ones who led the round to buy them out. And, trust me, it was an awkward conversation. You know what I mean? Like, they’re like, well, what’s this? Why did this Series C investor want out? And I was like, well, they didn’t actually want themselves out, they wanted us out. They wanted control of the company, not necessarily out of the company. So they’re like, oh, that’s pretty fucked up.

And so, I made mistakes in that, too, as I wasn’t perfect. But, you know, luckily, a lot of the investors we had were very much about founder-led teams. And there’s a lot of magic that happens with founder-led teams. And founders often struggle to make that transition into a true CEO. And there were certain moments in that period where I struggled as well.

Eventually, I think I became a pretty good CEO, but it was kind of all happening at once, right? We’re growing so fast. I’m trying to scale myself. These guys are coming at us and saying, hey, our IRR is all fucked up because you’re not moving upmarket fast enough. It was like just this perfect storm of just crap.

And I truly didn’t think the company was going to make it. They actually pulled out of the buyout deal 24 hours before because they called us on some technicality or something. They were just fucking with us. They ended up getting $50,000 more in legal fees. This is the type of people we were dealing with, and it was a firm out of San Diego. I won’t say the name just because I don’t like to trash people backwards.

Mark MacLeod:
Well, I hope one-on-one you’re calling them out so people don’t do business with them. But, yeah, I appreciate you not doing it here.

Scot Chisholm:
It’s just too bad because there’s a lot of awesome people in the community. And frankly, I’ve been so lucky with my other investors. It was like one bad choice, which basically stemmed from, and I’ve been asked this quite a bit, well, why’d you let them into the company? Like, weren’t there warning signs? You know what I mean?

And, you know, there were two things. One is that I chase valuation. You’re never supposed to do that. And in retrospect, we’re talking like $10 million. So that sounds like a lot when you’re a seed and Series A company, but when you’re raising a Series C, $10 million is not that big of a deal. You want clean terms versus that $10 million swing.

And I had other term sheets. We weren’t in a pickle, and they were from good firms. So that was on me. We chased valuation. They were also a private equity firm, and our other term sheets were from more pure venture firms. And that’s a different mindset. And, you know, I definitely think there are great private equity firms out there, but typically they would invest late in a later-stage company, and we were like, early for Series C. We weren’t quite at true, true, true scale.

And so there was just a lot we still had to figure out. And PE firms tend to be less adaptable in that way. If you have to redo your go-to-market to try to move upmarket, they’re not going to be the best partner. They’re a little bit more formulaic. They’ve got their thesis, like, very tight math on what you should be doing every quarter in a year.

And if you have to go break that somehow to go figure yourself out, that’s going to be a troubling situation, which I learned. Whereas a venture person comes in and says, oh, I get it, you know, there’s huge rewards here. Not all of them are great like that, but most of them have a little bit of a different mindset with kind of changing plans and pivoting and adapting.

So anyways, they swim downstream too early. We swam upstream too early, and that was a culture clash. And there were values things that I should have noted earlier as well, just in the way they thought about running companies, their portfolio, and whatever. I often say to founders now, when any investor gives you their referral list of people to talk to, like their founders, go talk to three other founders that are not on that list, don’t just talk to their referral list. So, it’s so simple but people just get excited like I did. They get excited by a term sheet with a big number on it, and they’re like, oh my god, the company is now worth ‘X’.

And it’s really difficult to, like, say, wait a second here, I’m gonna go do a bunch of referrals and like, you know, try to go find bad news because you want the good news to continue, right? Because it’s so hard just to even get a term sheet. It’s your baby, you fought to get that term sheet. You know, like, unless you’re the top 0.001% of companies that people are just handing you term sheets, the rest of us entrepreneurs out there, it’s actually fucking hard to get a term sheet.

So when you get one with a decent number, you’re like, holy crap, I don’t want to lose this. You know what I mean? You almost have this more like, let’s protect this term sheet mentality versus let’s go vet the partner and you don’t necessarily want to do that because you’re like, well, that might add risk. I don’t want to get bad news and say that, I don’t want this. I want this. And that’s exactly what happened with us.

Mark MacLeod:
Let me bury my head in the sand. Everything’s going to be fine.

Scot Chisholm:
Exactly. And I did. I buried my head in the sand there.

Mark MacLeod:
So many lessons there. The point about chasing valuation is such an important one, right? Like, I could tell you both as an operator and later as a banker, I always chose the human, the partner that was leading the deal. First of all, are they aligned? Do they want the same vision that I want? Do we have similar values? Don’t have to be carbon copies, otherwise, we’re redundant. But there should be some overlap. And also, like, do I like them? If I was taking a flight to Tokyo, sitting beside them, would I be cringing or looking forward to it?

Like, always prioritize the human over the firm and definitely over the valuation. But, yeah, what you experienced is very common. I’m curious, do you still have board control? Is that how you were able to send them off?

Scot Chisholm:
Yeah. Yeah. And so we still had board control, and they did a minority deal. So they don’t normally do that and that was part of the problem. Like, they had done a deal that they don’t normally do.

Mark MacLeod:
So they regretted it and then it was your fault.

Scot Chisholm:
Exactly. When you have a strong preference for majority deals and you do a minority deal, then you don’t have the control that you normally have. Then you bang the table and do other weird things to try to try to create that control. But there’s nothing wrong with majority deals if both parties know what they’re getting themselves into. Like, that’s kind of like a mini exit or a full exit, really.

So, you know, that’s fine. That’s a different category, though, right? So these guys came in and did a minority deal, and then they didn’t have the control that they’re used to. So they tried to do all these other blocking tactics like freezing the option pool, freezing capital coming into the company, and running out the cash. Like, these are tactics to basically put the management team against the wall. And it puts tremendous pressure on other board members as well. Now, where we really got them was the fiduciary duty and they never admitted this.

And there’s no ‘silence’ clause in this story or anything, but they never admitted this but once we started talking about fiduciary duty, the tack changed in the negotiations big time. Because, look, when you’re, when you’re an investor, you come in, you gotta represent all the shareholders and not just yourself. And that’s really what fiduciary duty is. I mean, you have a fiduciary duty to all the shareholders is the point. But you also represent your firm.

So, it’s always challenging to kind of have both of those, the two little birds on your shoulder talking as an investor in the boardroom. But there was such a blatant breach of holistic thinking and looking for the benefit of all shareholders in this account that it was pretty easy to call foul and at least put some pressure on that regard. Like, we had a case there. I think it was gray enough that it forced them to the negotiating table in the right way.

Mark MacLeod:
Amazing. Jeez. So how did you…

Scot Chisholm:
Let’s talk about something positive. I’m having PTSD, Mark, you’re helping me through. No, no, it’s good. It’s like a counseling session. I’m actually mostly over it. It’s like I wasn’t over it because there are so many other things that they did psychologically to beat me down. I mean, we don’t want to talk about it here, but it was the nastiest behavior you can imagine. It took me years to recover from that.

Now I talk about it in a joking fashion, but it was gnarly. It was much more positive in my story than negative. That was the one-two year that was like the Eeyore cloud hanging over the company for two years. Everything else was pretty solid.

Mark MacLeod:
I love it. So running an SMB software company, where it’s sort of like a high-volume funnel, with very quick sales cycles, is completely different from running enterprise. How did you transition to becoming an enterprise CEO?

Scot Chisholm:
Yeah, well, first it was how do we transition the sales organization to become an enterprise sales organization, right? I mean, I had done a…

Mark MacLeod:
Was it a transition or was that just like we’re building an entirely new sales org?

Scot Chisholm:
It should have been building an entirely new sales org. And it was actually a transition and we put reps in seats that they were not trained for and they failed. And we had to fire a lot of good people, and that was terrible because that was our mistake. And they didn’t want to go backward in their career back down to SMB, so we gave them a long shelf life.

But at some point, you realize, oh, my goodness, this person is not necessarily the best person to be selling to the enterprise. And that’s part of training and tactics, but it’s also personality and what they like. I mean, some people really thrive in transactional selling but do not thrive in long sales cycles, strategic presentations, sales engineering, etc. And there are all these different things you need.

So that was a really hardcore mistake on my part. There were really two of them embedded in there. One was the right people in the right seats, the right folks that showed the characteristics that they could be strategic enterprise sellers and promoting them, but also bringing in people that had enterprise experience to be in those seats alongside them. So you have sort of peer-to-peer learning going on, and it could raise the boat. We were also pretty slow to bring in experienced enterprise and even mid-market managers. And we promoted the managers even into those seats. And so we ended up having to shed some good people, which was painful.

We ended up essentially rebuilding the team and then we would promote people into the rebuilt team, if you will. We didn’t do anything with the transactional sellers. They stayed, but then they were able to promote into the mid-market and then in the enterprise, but they were being trained and led and coached by folks that had experience there.

And the other part was the marketing. We didn’t seed the market correctly. We didn’t soften the beach, if you will, for the enterprise sellers. They went in cold. A lot of those organizations never even heard of us.

We thought we were better known than we were because we were really well known in the SMB space. But when we got up there, they were like Classy, who? You know what I mean? What are you talking about? And we even had to change the way we talked to them a little bit.

And those were some interesting conversations too, because we didn’t want to lose our brand and our values that we stood for because we had fun with our brand. We did cool stuff and whatever and we didn’t want to be all that serious up there talking to CFOs of enterprise organizations. So we ended up finding a nice middle ground but that was a really interesting transition, too.

So it’s like, it’s the people, it’s the marketing and softening the beach, getting the right demand and the right segment, and then it’s like just who you are as a brand and having to be able to develop that.

But you asked about me as a leader, there were so many mistakes in that transition, that it’s hard to pinpoint them all. But I think for me, I’ve always had the philosophy as the CEO, I need to earn my stripes with every new phase of growth. By “earn my stripes” I mean I’ve got to actually prove that I can do it. And I need to almost learn faster than the organization in these moments. And sometimes I did, sometimes I didn’t. I was usually out in front, but not always right.

Or you learn from the team, but you can’t assume that you have all the skills that are going to take to do all the challenges that are in front of you as a startup as you scale. So you really do have to seek those skills out. You’ve got to learn, you have to challenge yourself or else the company is going to grow faster than you and you’re going to be kind of left in the dust or you’ll become the bottleneck of your organization and you’ll be really holding the organization back.

I definitely had that self-awareness from the beginning. I knew that and I was freaked out about becoming the bottleneck of the business. And so it pushed me to really try to learn as fast as humanly possible. I didn’t always get it right, but I was always in that “I don’t know what I don’t know” mindset.

And when I coach founders now, I try to get them into that mindset if I sense that they’re a little bit guarded in that regard, it’s like, hey, you might be awesome now, but you know what? What got you here is not going to get you there. That’s going to be, you know, a totally different set of skills. And I tried to always have that kind of always be learning mindset from the beginning, and that was actually one of Classy’s core values, was always be learning just to try to create that learning mindset throughout the whole culture.

Mark MacLeod:
Love it. Yeah. You brought up the number one thing I look for in CEOs to coach as self-awareness. So, yeah, I’m glad you mentioned that.

Maybe let’s switch gears a little bit and talk about the exit. How did that come about? You know, what were the big takeaways, the big moments that folks might learn and apply to when they’re thinking about their own exits?

Scot Chisholm:
Yeah, I mean, it’s funny because you think about the exit when you’re growing the company and you’re like, who will buy us someday or will we go public? Or what would that look like? And it always ends up weirder or different than you’d expect.

Initially, I always thought Salesforce or someone like that would buy us because they were building out their vertical and it made logical sense. But at the end of the day, there was a big equity component here. So it’s an acquisition, but it was somewhat of a merger as well.

Like, I’m still a big GoFundMe shareholder, I still advise the CEO, and I’m still involved with the company. So it wasn’t just like a 100% cash transaction and you go away. The idea here was more strategic and this is why it was attractive. Otherwise, I wouldn’t have done it.

We had just raised a Series D financing from Norwest Venture Partners, which is a phenomenal firm. We had done some secondary for shareholders. We relieved the pressure there. Well capitalized.

And GoFundMe comes knocking. But they had already come knocking several times, and we had said, no, no, no, Tommy’s not right. And they came knocking right after Series D, which is really weird because at that point, you’re just confident. You’re like, let’s go.

And, look, they did a phenomenal presentation that basically said, this is our view of how the synergies between the two companies can be really amazing, not for just the shareholders, but really for their customers, not only their end users, which is the consumer looking to help people but also the nonprofit.

And can we create situations where nonprofits can meet new people out there who may be donating to GoFundMe campaigns. For example, let’s just say a school shooting or something else happens. And there’s a massive groundswell of support on GoFundMe. Well, there are organizations on Classy that tackle the root causes of those problems on a more ongoing basis.

So that donor who’s in the moment looking to support something tragic that happened, also be interested in a small monthly donation to an organization that’s actually tackling those problems from the root.

And so that was a big piece of the thesis of the merger. It was like, can we bring both platforms together and give the individuals, which is the donor, a richer giving experience overall? Because, yes, they can donate on GoFundMe to campaigns, and, yes, they can donate to individual charities on Classy. But if you brought that together, there could be this unified giving platform where they can bounce around and get connected to causes that they care about, different types of stuff, even local stuff.

They could have this idea of a unified giving profile where their whole history and sort of the lifetime of their giving are all tracked in one place. And we’re in the very early stages. We’ve only been together for probably a year and a half, almost two years. And so when two companies that are pretty big in size come together like that, there’s just a lot of work that’s got to be done to integrate the two companies.

And so we’re just, like, sort of just coming out of that, where we’re starting to see the early signs of some of these synergies in the product specifically and the benefits to customers, which is super exciting. But that was really why it was a strategic thesis around we’re just better together. It wasn’t like they’re just going around buying companies and doing bolt-ons, you know what I mean?

Mark MacLeod:
It wasn’t that type of thing like, “Hey, if you don’t do this, we’re going to crush you.”

Scot Chisholm:
Yeah. No, no, not at all. They actually knew they had bought in some smaller companies, sort of in our space, and they hadn’t done that well. And so they knew that they wanted to buy the leader, basically, and they wanted help in that space, versus they had some humility, and I liked that they didn’t understand the B2B side as much.

And we were really good at B2B SaaS since we had years of experience there, so it’s been kind of an awesome marriage. They let us run essentially as a subsidiary. It’s pretty independent, which is awesome. And the brands have been coming together in different, really cool ways, from the executive team to the product teams to everything over time.

They’ve done it in a really nice, natural way where it wasn’t, again, this bolt-on concept where it’s just they rip you into the organization, from culture to the values. They’ve taken great care because these are sizable companies. They were bigger than us, but we were pretty big. They’ve done it right, I think.

Mark MacLeod:
Sounds like a company that’s more than big enough to go public if and when the markets open up.

Scot Chisholm:
Yeah. I don’t know what will happen, but I think the thesis for both companies is that there will be more options for us together than solo, from an investor and shareholder perspective, whether that’s a public company someday or something else.

But what I do know is that GoFundMe and Classy, that combined brand, will be around for a very long time. I mean, GoFundMe has got to be a top 20 brand in the world. I mean, it is so well-known around the world, it’s crazy. You’d be so surprised. And it’s just rare to find brand power like that.

And that’s what also attracted us to the deal because Classy is a B2B SaaS company. Not a lot of people know Classy, and that’s cool. We actually like it that way. But they know GoFundMe, so GoFundMe can help us get our word out there as well, which is pretty cool, especially as GoFundMe is growing crazy internationally, and Classy is yet to really expand internationally from a charity’s perspective. So that’s a cool way where we can follow them across the world and let nonprofits in more countries use Classy.

Mark MacLeod:
Very cool. Maybe the final topic, Scot. So you’re still involved with GoFundMe, but now you’re a helping entrepreneur. Just tell us about that. Obviously, I can just tell from this discussion there’s such a wealth of experience to share with people. Who are you helping, and how are you helping?

Scot Chisholm:
Yeah, it’s a great question. I started working with founders because one of my investors at Classy asked if I wouldn’t mind working with one of his portfolio companies. I hadn’t even thought of this. I was like, okay, yeah, that’s fine. So, you know, they ended up giving me some equity and paying me more than I was expecting, and I’m like, wow, this is kind of interesting. Like, I guess this has tremendous value to people.

Cause it’s when you look at your experience, I’ve been doing this for 20 years, and there’s still imposter syndrome in that regard, right? I’m like, wait, they’re gonna pay me for this experience? Like, I feel like I don’t even know that much. And then you’re like, I guess I have been doing this for 20 years, and, like, I’ve gone through the ring room back, and they’re still in their Series A and, like, I guess I could help. So it was interesting because it’s not that I’m not confident, but it was weird the way I looked at this.

I’m like, I was almost surprised that they saw this as valuable in the way they did. So that was kind of interesting just in general, but, you know, that led to great conversations, and I was working one-on-one with this founder, which led to a couple of other engagements like that, and then I didn’t really.

And I’d love to talk to you about this at some point, too, but I didn’t really see myself scaling the one-on-one coaching as much. I actually didn’t even know how to. That’s actually what I want to ask you, how do you do that and not go insane?

But, like, I started, you know, to think about what would it look like to do more group coaching and create a community and do events for that community and that’s what I ended up founding, which was which is a program called Highland now. And it’s basically two parts. One is its executive coaching for the group.

And I do like master classes essentially on a variety of topics. And I help companies understand what an operating system is for their company and how to use that operating system for scale. Typically, when that comes into play you’re post-product market fit and you’re just getting into the initial scale phase. The founders that join Highland are about $1 million to 10 million in revenue typically.

Some are a little smaller, some are a little bigger, but that’s generally the range. They need a product that’s in a market that they know people at least somewhat want and they’re trying to figure out, okay, how do I go from what I call build mode to scale mode? Build mode is like you’re racing to build a product and match it to the market that wants the product. That’s the product market fit phase. You very founder mentality, very builder mentality.

Then you get into this scale phase where you’re like wait a second, I have to start working on the organization itself. I have to design the right organization, the right team, the right culture, all these different things. I have to start working on the macro a little bit more than the micro.

And so that’s really that transition that people that founders struggle with. And that’s really where I remember myself having a lot of issues with that. And so that’s really where I pinpoint my coaching. It’s like that transition from build mode to scale mode, or in other words, from product-market fit phase to scale phase, working in the organization versus working on the organization.

Mark MacLeod:
Love it. Yeah, well, that’s the bulk of the market. I had Andrew Gazdecki, CEO of acquire.com on here recently, and he was telling me that only 4% of SaaS companies generate more than a million in revenue, which kind of blew my mind. So you wonder why you were valued so much with that first company. It’s because you were 100x that place that 96% of startups never get to.

Scot Chisholm:
Yeah, and that’s surprising. I mean, there are so many SaaS companies out there, but you wonder why that is. You know, is it the market? Is it the founder? I think it’s a lot, and it’s a combo of a lot of factors. But for me, it’s about unblocking the founder as a leader because my belief is that more founders can become great CEOs than I think they realize or other people give them credit for.

And I say the founder calls it quits earlier on themselves than any investor will ever do. I think investors genuinely want the founders to succeed, but what will happen is the founder hits a ceiling, becomes the bottleneck, stress goes through the roof, doesn’t ask for help, and then they just say, I’m not really a CEO. And they gave up on that role. They might assume the role for a couple of years longer, but they give up on trying to be a CEO.

And some just don’t know what that means. I truly believe it’s unblocking them, becoming more self-aware, and then giving them the operational framework. Everyone’s company is different. So I’m not just saying, hey, this is how we did it at Classy, do it like this. But I’m giving them a framework that they can make their own, and that gives them sort of the scaffolding and they help to understand how this stuff kind of works and interrelates.

It gives them the confidence to say, oh, I kind of know what I’m doing now. I know what to focus on during my day. I don’t feel like I need to be in the weeds all the time. And I know how to hire people, I know how to build a team, those types of things.

So it’s really just giving them the confidence and working with someone who’s been through it and someone like myself who understands that my experience is not going to be their experience. So that’s so critical when you’re coaching. It’s not just, trying to force fit them into my system. You know what I mean?

Mark MacLeod:
That’s the difference between coaching and advice. Advice is, here’s what I did, you should do it. Coaching is not that. Coaching is recognizing that these are unique circumstances and just probing so that a person can generate their own insights and their own plans.

Scot Chisholm:
Yeah. And for folks that have raised venture, and there’s a lot of people listening who are in that camp. And I think there’s no better place where there’s no better thing to do than work and invest in yourself from an executive coaching perspective, whether it’s something like your program, my program, find one that you like, because honestly, most venture capitalists have great advisor or operational experts for sales, for marketing, for operations. They don’t have a lot for the founder itself, which is so surprising to me.

I was talking to some of my buddies at Excel Ventures, and they were excited about what we were doing because they’re like, yeah, we don’t think we have that yet. And I’m like, you’re one of the best VCs on the planet. Like, how do you not have that yet? And he said, they usually leave it up to the board member that sits on the board to give advice to the CEO.

That makes sense, but more from an objective perspective, where there’s sort of like you have a safe space and you’re able to basically do this separately and work on yourself, so there’s no conflict of interest there. I think that is actually hugely beneficial to both the founder and the investor. Like, they want the founder to succeed, they don’t want the founder to hit the ceiling in the bottleneck, you know what I mean? So it’s like, they should be, I think the board should be investing in these programs on behalf of the founder, you know?

So if I’m a founder, you know, first identify that I’m like a professional athlete and I gotta keep practicing. You don’t know everything, right? So that’s just the self-awareness, like you mentioned before is so critical. And then go to your board and be like, guys, like, I truly believe you want me to learn and grow in this seed. I know you think I’m the guy, and I think I’m the guy, right? But I’m going to need help.

And I just am aware enough to know that that’s not a sign of weakness. That’s actually a sign of strength because you don’t want me to hit a ceiling. And that’s what happens with the other 96% of startups that are out there. You just made this investor and you just made this investment. You should make an investment in me too.

I also think that goes for self-care. So one thing I added very late in my journey was this idea of a self-care package. And for me, it was actually just for the founder because it’s a marathon, not a sprint. And for me, it was like having the company pay for personal training and some supplements and stuff like that.

It wasn’t anything crazy, but that gave me a little bit of cushion there to prioritize it, right? To say, actually, this is important and the company’s paying for it, so I’m gonna do it. So it automatically pushed me down this health direction after years of not treating myself well. Oh, my goodness, I treat myself like crap.

So, my god, I look back and I cringe at what I was doing. And I bet a lot of founders are like that because you’re not the priority. The company’s survival is the priority. So you get a backseat, but then you realize, holy shit, actually, I kind of need to be healthy.

Mark MacLeod:
You thriving is what makes the company thrive, right? 100% correlation.

Scot Chisholm:
Yeah, totally.

Mark MacLeod:
Man, I wish this was an hour longer because there are so many lessons there. For people who want to learn more about you and follow you, where do they go?

Scot Chisholm:
You can just go to scotchisholm.com. And then I’m pretty active on LinkedIn and Instagram and more recently, X. And so I share a lot of my content there, too, so pretty easy to find.

Mark MacLeod:
Good stuff. Well, thanks for making the time, Scot. I really enjoyed this discussion and it was great to see you again.

Hey, thanks for listening to the Startup CEO Show. If you’d like to connect with me, be sure to visit my website at markmacLeod.me, or follow me on LinkedIn at The Mark MacLeod, or X account @markmacleod_, and if you want to tune in again next week, be sure to subscribe on YouTube, Spotify, Apple, or wherever you get your podcasts. We’ll see you next time.